ELTIF 2.0 and OIS: Momentum for infrastructure investments

Andreas Gessinger: Can you please elaborate further on the opportunities and limitations of the ELTIF?

Marco Simonis: ELTIF 2.0 is not limited to infrastructure investments. It now includes the acquisition of general tangible assets such as all types of real estate. Under ELTIF 1.0, there was a high entry barrier for tangible assets with a minimum threshold of ten million euros, and the definition of tangible assets was more restricted. In private equity, there used to be a cap on market capitalisation. Now, direct investments in private equity are allowed, and loans can be granted to qualified portfolio companies. Previously, funds of funds were not allowed under ELTIF 1.0, and investments were restricted to other ELTIFs or European social venture capital funds. Now, target funds can be UCITS or AIFs, if they are domiciled in the EU and managed by an EU AIFM. The assets of these target funds may be located in non-EU countries. Direct investments are also permitted in non-EU countries, provided that the target companies are not on an EU blacklist. This has expanded the geographic scope of investments. The regulators have ensured that funds available for acquisition do not include non-acquirable assets. This means that target funds are only allowed to invest in assets that the ELTIF can directly invest in.

Markus Bannwart: At the beginning of every structuring, you need to ask yourself which investors the product should appeal to. The target investor must be able to invest, as not every vehicle is accessible or suitable for every investor. Tax transparency is also a key issue in structuring, while for German investors the investment tax law is crucial. For German pension schemes or pension funds, their own specific investment regulation plays a role, while German institutional funds (‘Spezialfonds’) may be subject to legal restrictions regarding the investment strategy. In addition, for retail customers, minimum investment amounts and the terms of redemption options play a key role. Beyond understanding investor needs, the structurer must also be adept with various asset classes. For example, you need to clarify whether the capital management company (‘Service-KVG’) itself will manage the portfolio in-house or engage third-party asset managers. Other important questions include: How will the assets be valued? How will the transactions be organised? Are sub-structures required? Regarding the investment phase, you also need to decide how the asset manager would like to handle liquidity and which capital call mechanisms should be implemented. 

Norman Finster: Capital calls will certainly not be used in the case of a retail ELTIF, for example. As with UCITS, private investors will have to pay for their fund shares in full when they subscribe.

Markus Bannwart: If an investor can make investments and the assets are optimally integrated, further fund details need to be clarified: Is a distribution or reinvestment desired? Is currency management or currency hedging required? Should institutional investors and retail investors invest via one share class, or should various entry channels be set up for a portfolio? Sustainability is also an important factor. Depending on its sustainability characteristics, a product can receive a qualification in accordance with Article 8 ("light green") or Article 9 ("dark green") of the SFDR (the EU’s Sustainable Finance Disclosure Regulation).

Norman Finster: Regarding administration, the question arises about how to represent liquid and illiquid assets within a system and integrate them into fund accounting and reporting. Currently, there is no system that can do both equally well. Alternative investment managers are also not used to managing semi-liquid vehicles. Alternative funds for institutional investors are typically commitment-based, whereas a retail product requires immediate investment upon payment of the subscription amount. 


On the distribution side, an ELTIF with retail investors functions in the same way as a UCITS fund. It requires integration with a platform, Swift connectivity, a distribution network, and trained professionals. ELTIFs have so far often been launched by multi-asset initiators who already have a large UCITS footprint and are connected to retail distribution networks. While alternative asset managers are good at using placement agents to raise institutional money, they find it challenging to access private client funds due to the lack of partnerships with retail distributors. However, this area is currently evolving.


In terms of reporting, an ELTIF is required to fulfill semi-annual and annual reporting duties. These obligations tend to follow the legal framework selected for the ELTIF rather than the ELTIF regulation itself. The asset manager of an ELTIF is subject to AIFMD reporting requirements.

Marco Simonis: 
There are certain requirements for the annual report; for instance, a cash flow statement is needed. Information about the portfolio companies must also be provided. A key aspect is the disclosure of costs. There are specific rules under the RTS framework, but details are yet to be clarified. 

Andreas Gessinger: What potential do you see in ELTIF 2.0, and what trends are you observing in the market?

Markus Bannwart: There’s already a considerable interest in ELTIFs. There is both a need for infrastructure investment and a demand from investors for such assets. Now, with this instrument, we can link the two. Once regulatory aspects are more established next year, we anticipate a marked increase in interest in ELTIFs. They are becoming much more accessible to retail investors, especially with the elimination of barriers like the minimum investment of 10,000 euros and the ELTIF suitability assessment. In addition, despite some assets being illiquid, individual redemption mechanisms can be offered.

Marco Simonis:
Numerous ELTIF 2.0 funds have already been applied for. We will see a diverse spectrum: funds of funds as well as vehicles investing directly in individual asset classes or multi-asset class funds. The key to success is flexibility for the asset manager. He now has the freedom to not only initiate a strategy, but also to adapt it through various market phases.

Andreas Gessinger: We have got another topic on our agenda – open-ended infrastructure funds. What makes them unique, and what potential do you see for them?

Markus Bannwart: Since the revision of the German Investment Code (‘Kapitalanlagegesetzbuch’) in summer 2021, infrastructure investments can now be offered as open-ended mutual funds in Germany. This creates new opportunities, especially for private investors. Being a German-regulated fund allows for a broad distribution to retail customers in Germany through various platforms.

Marco Simonis: The German OIS is an advancement of the established open-ended mutual real estate fund in the form of a German Sondervermögen. The vehicle cannot invest directly in infrastructure, but in infrastructure project companies, with the term being broadly defined. Possible investment targets can either be companies involved in renting or distributing, or companies with multi-layer structures. Borrowing at the level of portfolio companies is possible with appropriate structuring. Up to 30 percent of an OIS can be invested in real estate, with a primary focus on direct investments. Eligible securities may also be added to the mix. An OIS is required to maintain a minimum liquidity of ten percent, and the rules for minimum holding and notifications are similar to those of open-ended mutual real estate funds. Redemptions are allowed at most semi-annually, but at least annually. As a new vehicle, the OIS has gained prominence and is now ready for practical application.

Andreas Gessinger: Universal Investment recently launched an open-ended infrastructure fund with the investment and asset manager KGAL. Mr Bannwart, what practical experience have you gained in the process?

Markus Bannwart: In November, as a capital management company, we launched the open-ended public AIF “KGAL klimaSUBSTANZ”. The aim of the fund is to build a diversified pan-European portfolio, focusing on sustainable energy generation. This Article 8+ fund under the SFDR allows German retail investors to directly invest in a broadly diversified renewable energy portfolio with a small investment amount. As one of the first to launch such a product, we had limited experience in terms of fund documentation and coordination with all parties involved, especially the supervisory authorities. During the launch phase, we had only initial drafts agreed upon by associations and BaFin, which we were able to further refine and align in cooperation with the supervisory authority. 

On the operational side, challenges include implementing a daily valuation and trading of shares in a relatively illiquid portfolio, such as infrastructure project companies. When selecting our partners, we had to manage with no prior experience, whether it was with custodians or valuers. Many valuers were experienced in valuing infrastructure investments in German institutional funds (‘Spezialfonds’), but not in a public AIF. This project once again highlighted what sets us apart: our willingness to take innovative paths as pioneers with our partners. In the end, all participants benefit. 

Andreas Gessinger: How can Universal Investment contribute to the success of ELTIF 2.0 and open-ended infrastructure funds?